Disinvestment in FY 2020-21

The government was pegged a hasty target of Rs 2.10 trillion for FY21 for privatisation and stake sale in state owned companies. The target included Rs 1.20 trillion from selling stakes in the Central Public Sector Enterprises (CPSEs) and Rs 0.90 trillion from sale of public sector banks and financial institutions. Later on, the government revised the target of disinvestment to Rs 0.32 trillion. However, the government has garnered Rs 0.328 trillion through sale in the CPSEs and buybacks of shares in the financial year 2020-21 (see table). It is 15.64 per cent of total target, 27.36 percent of target for CPSEs disinvestment, and 102 percent of the revised target of disinvestment. 

The government had planned that a maximum of four CPSEs in the strategic sector would be allowed and state-owned firms of non-strategic sector would eventually be divested. It was proposed to sell - a part of the government’s holding in Life Insurance Corporation of India by way of initial public offer. Besides that, the government planned to sell the balance holding of the government in IDBI Bank to private, retail and institutional investors through the stock exchange. At present, the government holds 47.11 percent and LIC holds 51 percent stake in IDBI Bank. 

Due to non-realisation of targets the position of the fiscal deficit has deteriorated. It has surged to 9.5 percent in FY21 and expected to be 6.8 percent in FY22. Due to shrink in revenue total borrowing has also increased by 2.3 times. On the other hand, as per revised data, the interest cost has increased to 44.5% in FY21 and is projected to be at all - time high of 45.3% in FY22. This means that about half of the revenue will go in servicing old debts.

It is back-to-back second time when the government missed the target even though Sensex - the barometer of Indian economy and Nifty was touching new heights. There are many reasons why the target was not achieved. One of the main reasons for not achieving the target was the fixation of the high target. The target of FY21 was two times higher than the target of FY20 and almost four times higher than the average target of the last six years. Another reason was the outbreak of the corona pandemic that forced the government to push the timeline to the next fiscal. The lack of interest of buyers in the loss-making and sick CPSEs was also a reason. 

The Government, however, had made its full efforts to achieve the target but all the effort was in vain. Even the listing process could not be taken off. The government again proposed to sell its stake in LIC and IDBI Bank in FY2022. To give further momentum to the disinvestment process, the earlier disinvestment commission needs to be revived. The commission will make the strategy and carry out the government’s mega privatisation programme.